Comments on Proposed Rule: Auditor Independence Requirements

Author: "William Aldrich" at Internet
Date: 09/11/2000 9:32 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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Hello,
After reading the Motley Fool's article on the need for independence between
the auditing branch and consulting branch of auditing firms, I believe that
the two branches should be separate. Apparently, many in the accounting
profession think that, too. Just today I read in the Wall Street Journal
that Hewlett-Packard will try to buy the consulting branch of Price
Waterhouse.
Yours,
Bill Aldrich

Author: "Bock; Jason J." at Internet
Date: 09/11/2000 8:51 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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I fully support a rule that would increase the independence of
auditors. As and individual investor, I rely on the financial auditors of
public companies to do their jobs to the best of their abilities so I can
have accurate information to base investment decisions on. I count on
these auditors to take an independent and detailed look at a companies books
because I don't have the expertise or the access to do this myself. The big
accounting firms argue that their is no conflict of interest but I disagree.
Even the appearance of a conflict of interest is harmful. One of the
cornerstones of our market system is the faith that the numbers put out by
public companies are accurate and have been verified. If this is put into
doubt because of a conflict of interest (or an appearance of one) then the
whole system loses validity and the risk of investing increases for
everyone. Thank you for your time.
Jason Bock
Bock110@cs.com
Westlake, Ohio

Author: "Ronald Butler" at Internet
Date: 09/11/2000 8:21 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00 Auditor Independence
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Speaking as an investor, the separation of professional audits from
consulting services is absolutely critical. Please keep up your efforts
to create an auditor that investors can trust and keep them independent
from services firms. It is obvious to me that the accounting profession
will not clean up it's own act and it will take SEC intervention to make
this happen.
Thank you for your continued efforts in this matter..

Author: at Internet
Date: 09/11/2000 10:23 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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I am writing to comment on the SEC's proposal to require the separation of
auditing and consulting services of auditing firms. I support all measures
necessary to secure the independence and reliability of financial audits.
Audited financials provide the cornerstone information on which the
efficiency and accuracy of market prices for publicly traded stocks depend.
As an individual investor, I lack the resources to independently verify such
information -- I am dependent on the SEC and market safeguards for that
task. Anything that calls into question the reliability of those safeguards
-- such as an independent profit motive on the part of the auditors -- puts
the market, and my investments, at risk. Please proceed with regulations to
secure the independence of auditors.
Thank you for the opportunity to comment,
Marinn Carlson
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Author: "Mike Cochrane" at Internet
Date: 09/11/2000 12:18 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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To whom it may concern,
As an individual investor I find it unacceptable for auditing and consulting to
come from the same firm. It is an enormous conflict of interest and I find it
amazing that it has gone on for so long. Please put an end to it.
Thanks,
Mike Cochrane

Author: at Internet
Date: 09/11/2000 12:25 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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As an individual investor I would like to register my strong support for
rules/regulations to enforce the separation of accounting (audit) and
consulting services by the same company. Its simply common sense that the
potential conflict of interest is so great that it should not be allowed.
- Christopher J. Crowder

Author: "Marcie Harding" at Internet
Date: 09/11/2000 8:30 AM
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TO: RULE-COMMENTS at 03SEC
Subject: Rule S7-13-00
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When the profession of accounting is turned into the more-lucrative business of
consulting, the independence of the audit is suspect.
Cross-marketing is the real danger. These outside services must be divorced from
the audit.
Marcie Harding
Phone: 812 476-6662, Ext. 214
FAX: 812 469-4163
Email: marcie@pinncomp.com

Author: "Heller; Charles" at Internet
Date: 09/11/2000 9:01 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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Auditor Independence
I fully support your above initiative and I thought I would just drop you a note
to let you know. Consulting fees being so important to auditors it is difficult
to keep the auditors independent. Good luck!
Charles Heller

Author: "Hove; Paul E (C)(STP)" at Internet
Date: 09/11/2000 7:39 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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The Wall Street Journal newspaper reported previously confidential details
of the probe on Friday. It said that from 1991 to 1997, Arthur Andersen
received from Waste Management about $50 million in fees for consulting
services and $10 million for auditing services.
Is this what we can expect from SEC who we depend on to protect us from
stock manipulation by organized criminals. Who is paying off the watchdogs!
Get your act together or face the voters. This will soon be a issue that
will be decided in congress and not necessarily favorable to your
organization.

Author: "Richard Jenkins" at Internet
Date: 09/11/2000 8:50 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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Sirs,
I would like to comment issue of consulting services and independent
auditing.
The role of auditor within the profession of accounting is in essence a
position of public trust. When the financial statements of a publicly
traded company are annotated with a statement of an independent auditor,
investors have the right to expect that the auditor IS in fact independent.
Small investors, in particular, do not have the resources to verify the
informatio contained in financial statements. They must rely on the
accuracy of these documents and the integrity of the auditors independence.
For the auditing entity to derive a substantial portion of its income (often
far greater than the fees generated by auditing)from the firms that it is
auditing in a non-auditing function certainly raises the spector of a
conflict of interest. While there may be no publicly available evidence of
compromised audits, the lack thereof does not prove that there are no
compromised audits.
I spent many years serving in the military. As a leader of junior soldiers,
I had an obligation to treat all of them equally and fairly. It was made
quite clear, on multiple occasions, that not only would favoritism not be
tolerated, but that the mere appearance of favoritism was cause for action.
If I found myself in a situation where a soldier might reasonably feel that
I was treating another soldier preferentially, I was bound to take steps to
eliminate and/or correct the situation.
In my opinion, the same standard needs to be applied to the position of
independent auditor. While there may never have been an audit whose
integrity was compromised by the fact that the auditor was also a
consultant, the mere possiblity or appearance of such compromise justifies
taking steps to elimate the possibility or appearance. If this is not the
case, how is the investor to have faith in the independent auditors'
statements?
Best Regards,
Richard J. Jenkins
2334 Wavetree Lane NW
Acworth, GA 30101

Author: JAN JOHNSON at Internet
Date: 09/11/2000 7:44 AM
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TO: RULE-COMMENTS at 03SEC
Subject: S7-13-00
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I DEFINITELY SEE A PROBLEM WITH AN AUDITING FIRM ALSO DOING CONSULTING
FOR THE COMPANY IT AUDITS. PEOPLE ARE BASICALLY HONEST; HOWEVER,
CONFLICT OF INTEREST IS AN ISSUE AND SOME PEOPLE ARE NOT AS HONEST AS
OTHERS. WHAT CAN WE - THE INDIVIDUAL INVESTOR - DO TO HELP YOU DIVIDE
THIS POTENTIALLY DANGEROUS SITUATION?
JAN JOHNSON

Author: at Internet
Date: 09/11/2000 9:56 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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Date: September 11, 2000
Re: File No. S7-13-00
To the SEC:
As a small independent investor in individual stocks and mutual funds, I urge
the SEC to establish rules and regulations that would require auditors to be
independent and totally divorced from more lucrative consulting services
being offered to their clients.
I am a 52-year-old divorced woman dependent on my modest portfolio to support
what I hope will be a long and healthy retirement. I must trust in the
integrity and objectivity of oversight auditors to give clean and accurate
bills of financial health to the companies in which I invest, or in which the
managers of my mutual funds invest.
I am concerned that during this historic bull market, safeguards of the
public interest are being chipped away in the names of increased profits and
market opportunities. The private financial community becomes stronger as its
profits grow and, like the companies that support lobbyists to chip away at
environmental protection legislation in the name of competition and profit, I
believe large audit and consulting firms will continue to use their economic
and subsequent political power during this, their heyday, to expand their
profit-making opportunities at the expense of rigorous oversight intended to
protect shareholders in client companies.
The following excerpts from Chairman Levitt's speech at NYU were
thought-provoking to me. As one who has spent the last year learning how to
invest, it is especially important to me that during my due diligence
research of companies worthy of investing my modest and hard-earned savings
in, I can trust in the objectivity and total independence of the auditors
charged with fiscal oversight of those companies.
From half a century of observing human nature, it is painfully clear to me
that it is the subtle grey areas in which otherwise honest men and women make
decisions that may seem inconsequential and harmless in themselves, but taken
together create a clear erosion in the boundaries that separate public from
private interests. Where private interests gain too much economic and
political power they tend to protect and expand themselves, while public
interests tend to suffer or, at best, be overlooked.
With more and more small investors taking advantage of low-cost trading
vehicles and teaching themselves how to research and invest in individual
companies, it is more important than ever for the federal government to do
what it can to ensure that profitable and savvy audit firms do not lose sight
of their first and ultimate raison d'etre: to provide investors with
accurate, objective, timely, independent and trustworthy analysis of the
fiscal condition of companies. To do less than that destroys the very reason
for their existence.
I urge the SEC to establish rules and regulations that will ensure the
independence of oversight auditors from any influence or subtle persuasion
that may be inherent in their parent companies' efforts to expand their
services and/or markets to the clients they serve.
Thank you for this opportunity to address the Commission.
Janice Lesniak Babcock
11 Rackliffe Street
Gloucester, MA 01930
Tel: 978-281-4232 or 617-359-6645
E-mail:
From NYU speech, Center for Law and Business, 5/10/00, by Arthur Levitt:
As the firms expand their product lines, consulting and other services may
shorten the distance between the auditor and management. Independence - if
not in fact, then certainly in appearance - becomes a more elusive
proposition. When an audit firm performs valuations of numbers that appear in
its client's financials, the mandate for independence is threatened. When an
audit firm performs the internal audit function its client would otherwise
do, the ethic of independence is tarnished. When an audit firm also keeps its
clients books, the principle of independence is undermined. And when some
firms take on tax and other assignments where the size of the fee is based on
the answer given, one has to wonder how such a practice is consistent with a
culture that has long prided itself on objectivity.
Not surprisingly, product line expansion has been an outgrowth of market
forces. And the audit is sometimes priced lower to attract clients willing to
pay for higher margin consulting services. But, the audit foothold as a
distribution channel is at the very root of the inherent tension that these
interdependent relationships foster. The audit engagement partner, upon whose
shoulders much of the credibility of the profession rests, makes decisions
each day that affect the underlying quality of the audit. These often
unrecognized guardians of our capital markets exercise the judgment that
validates the integrity of the financial information.
More than a hundred years ago, it was said, "A public accountant acknowledges
no master but the public." But, when auditors engage in extensive services for
an audit client truly unrelated to the audit, they must now also serve another
master - management. In this dual role, the auditor, who guards the integrity
of the numbers, now both oversees and answers to management.
Assuming the role of "relationship" manager, the auditor helps develop and
coordinate extensive cross-selling and marketing strategies with, for
example, his firm's information technology consulting group. And while it may
never be quite so explicit, some auditors know, and others suspect, that
their compensation is influenced by how well they "manage" that relationship
in its entirety. As the firms' business objectives drive them into broader
alliances, it's becoming more difficult to ascertain where one relationship
ends and another begins.
If a firm is auditing a major computer company or a global financial services
firm, it needs to have the necessary technological or financial skills. And,
as technology becomes increasingly important to business and to the future of
the profession, firms need to be able to develop and maintain these essential
skills. When this broader skill set is being used to further the audit,
that's good business and good for investors. But if those skills are used
purely to build databases, structure employment payment plans, or devise
financial strategies, I'm concerned that the audit function is simply being
used as a springboard to more lucrative consulting services - instead of
augmenting the firm's core focus.
Some argue that offering consulting services to audit clients facilitates the
recruitment of talented professionals. But if these same services can be
offered to other clients, isn't this more an argument for the synergies of a
business model based on cross-selling services? In any event, a more
competitive recruiting environment is not sufficient justification to awaken
the specter of compromise or to jeopardize the integrity of audits.
It is not the bright line of right and wrong that the lack of auditor
independence often implicates as much as it is that grey area where the
answers aren't so clear; where the temptation to "see it the way your client
does" is subtle, yet real.
Independence is, in many respects, a condition of the mind of the auditor,
its reflection the trust and confidence of the public
Should there be more appropriate limits on the types of services that an
audit firm can render to a public company client? How should audit firms be
structured to assure independence? What are the consequences, if any, of
public ownership? Should firms be permitted to affiliate with entities who
provide services to the firms' audit clients that the firms themselves would
not be allowed to provide?
But, even before the SEC considers ways to safeguard independence, I appeal
to corporate America's audit committees to pay close attention to the types
of services their auditors are performing and to question whether it would be
more in their investors' interests to have some of those services performed
by someone else.

Author: at Internet
Date: 09/11/2000 8:43 AM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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I wholeheartedly support the "Auditor Independence" rules. Combining the
auditing and nonauditing services create a conflict of interest and is not
in the interest of the shareholders.
Dinesh Shah

Author: Diane Taylor at Internet
Date: 09/11/2000 12:10 PM
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TO: RULE-COMMENTS at 03SEC
Subject: File No. S7-13-00
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Dear SEC,
For some time I have wondered how reliable the audits of companies
are... Based on the audit of the institute for which I work (granted it's
a nonprofit and not in the US), which I find rather superficial, I wonder
about audits of major and not-so-major corporations. Our auditor is, by
the way, Atag Ernst and Young, one of the major firms in the field. An
additional question arises when the firms that provide the audit also
provide consulting services. It would seem that this is a conflict of
interest.
I hope that the SEC takes these matters into consideration (thorough audit,
auditors not otherwise connected to business with a company) when it
changes regulations in the future.
Sincerely yours,
Diane Taylor
(have Keogh and IRA accounts with Charles Schwab)

Author: "Trentham; Allen (CAP; TIPE)" at Internet
Date: 09/11/2000 12:51 PM
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TO: RULE-COMMENTS at 03SEC
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Separation of the consulting houses and the auditing houses simply makes
good sense from an independent investor standpoint. Having dealt with
numerous consulting companies over my career, I don't feel comfortable
dealing with groups that also audit our books, simply because I'm usually
showing them my "dirty linens" when I know that our auditors would/should
know about the same. GE has not been an issue, but other companies I've
worked for/with have been reluctant to have the same consulting houses audit
them...and vice-versa.
The argument that there is no evidence of impropriety is not valid since
there have bee numerous cases that were quickly settled, then sealed so that
no evidence would be around....

Author: "Paul Waits Jr." at Internet
Date: 09/11/2000 8:17 AM
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I read an article recently on The Motley Fool web site regarding an
initiative by the SEC to divorce the audit profession from those they
audit. In my estimation, this would be a welcome practice. I read
auditors reports for their expertise in following an organizations
fiancial practices. I depend on their knowledge to make my decisions on
any investments I might make in a particular company. I have not
suffered any losses from "selective auditing" practices, but I do not
feel as confident in the profession as I previously have been.
Sincerely,
Paul Waits
Software Engineer